Lucid Group: Buy, Sell, or Hold?

Lucid Group (NASDAQ: LCID) is an emerging company in the electric vehicle (EV) space that has caught the attention of investors since its merger with a special purpose acquisition company (SPAC) three years ago. Its luxury EVs boast an impressive driving range, and the company is looking to take on industry giants like Tesla.

While Lucid stands to gain from the growing long-term demand for electric vehicles, its journey to production hasn't been without hurdles. After reaching a peak of $57.75 per share in late 2021, Lucid's stock has seen a steep decline of 95%, currently trading under $3 per share.

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If you're thinking of scooping up shares of this promising electric vehicle company, consider the following.

Lucid looks to claim its stake in the EV market

Lucid Group focuses on manufacturing luxury EVs in pursuit of a more affluent customer base. The company aims to position itself as a premium brand in the competitive automotive industry with its commitment to delivering a high-quality driving experience.

One distinguishing feature of Lucid's vehicles is their impressive range. The flagship Lucid Air Pure, priced at $69,900, offers an exceptional range of 420 miles and boasts 430 horsepower. For those seeking even more performance, the Ground Touring model, priced at $110,900, has 819 horsepower and an impressive driving range of 512 miles.

In addition to its impressive range, Lucid's fast-charging technology allows drivers to gain 200 miles of range in just 12 minutes, making it an appealing choice for long-distance travel.

Image source: Lucid Group.

One thing Lucid doesn't lack is support. Since 2018, the Public Investment Fund (PIF) of Saudi Arabia has invested billions in the luxury EV maker. At the end of the third quarter, Lucid had over $5 billion in liquidity, providing it with enough funding through 2026.

The company also launched its long-awaited SUV model, the Lucid Gravity Grand Touring, in early November and is taking orders for the EV SUV, priced at $94,900. The company began production of this vehicle in December, which boasts an impressive driving range of 450 miles.

Lucid has solid backing from the Public Investment Fund and is making progress as it rolls out new vehicles, which could make it an appealing buy. However, investors will want to consider the company's financial situation before investing.

Lucid has tapped investors for money numerous times

It's been a difficult journey for the automaker, and things haven't quite gone according to plan. When Lucid first went public in 2021, Lucid management projected it would produce and deliver 49,000 vehicles by 2023 and 90,000 by this year.

Last year, the company manufactured 8,428 vehicles and delivered 6,001. This year, Lucid has delivered 7,142 vehicles, including 2,781 in the third quarter, a 91% increase from one year ago. The company says it is on track for 9,000 vehicles this year.

Lucid has had a slow ramp-up in production, and another pressing concern that investors should be mindful of is its cash burn rate. The company's revenue through the first three quarters of the year is up 31%, to $573 million. However, expenses continue to balloon in comparison. This year, expenses have been around $2.9 billion, and Lucid has a staggering operating loss of $2.3 billion. It lost a similar amount of money through the same period last year.

For an up-and-coming, pre-profit company like Lucid, funding is crucial for its long-term success. Because it doesn't have any profit to reinvest into the business, it has had to raise capital several times from outside investors to stay afloat. This includes capital raises through public equity offerings and investments from Saudi Arabia's PIF.

In October, Lucid raised $719 million in capital by selling 262.5 million shares priced at around $2.66 per share. The PIF invested another $1 billion in Lucid, bringing the PIF's total investment in Lucid since 2018 to $8.9 billion. The move provides Lucid with enough funding for a financial runway through 2026.

LCID Revenue (TTM) data by YCharts

Since 2022, Lucid's outstanding shares have increased from 1.65 billion to 2.32 billion, or 40%, as it has repeatedly tapped equity markets and watered down investors' positions in the process.

Should you buy, hold, or sell Lucid stock?

Lucid Group's luxury EVs are pushing the limits of EVs, and the company could benefit from long-term tailwinds for EVs. According to projections from the consulting firm PwC, the number of EVs in the U.S. could reach 27 million by 2030 and 92 million by 2040. If Lucid can gain its footing and generate positive cash flows, it has a real chance to grow rapidly alongside this market.

The company is taking steps to rein in costs but has required further investments from equity offerings and the PIF to keep things going. While the company has a cash runway to 2026, I'd like to see it make progress in improving its bottom-line results. Until then, investors should avoid or sell the stock until more tangible positive results are visible.

Should you invest $1,000 in Lucid Group right now?

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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.